Metadata

Abstract

With the advancement of democratization, the decentralization of policy decisions in developing countries, mainly in Latin America, became a feasible goal. With macroeconomic stabilization, particularly the drastic reduction of the inflationary processes that transpired in Latin America during the 1980s and 1990s, countries began to focus on the reduction of unemployment, as well as the generation of income and incentives for economic activity more generally. The combination of decentralization with the aboveoutlined policy goals points to the increased attention given to the possibility that these goals be accomplished by local governments. This type of public policy will be denominated in this report as Local Economic Development (LED). In the most recent literature, there are essentially two lines of inquiry with respect to local development studies. The first, called the “New Economic Geography” (NEG), seeks to reinvigorate the findings in classical studies by Marshal, Myrdal, Hirshman and others. The second research stream specifically directs itself at examining case studies on LED implementation in developing countries. Curiously, there is scant interchange between these two lines of inquiry in Brazil. NEG searches to define models based on microeconomic fundamentals in order to study the relationship between increasing returns to scale, transportation costs and agglomeration advantages. Based on these theoretical models, the empirical analysis inspired by the NEG seeks to evaluate the primary sources for these advantages or to estimate the size of the scale economies derived from these processes. However, limited attention has been directed at linking the theoretical implications of the new economic geography literature to most of the traditional arguments found in urban and regional economics. On the other hand, the literature on LED has sought to establish general parameters which define what a LED program is and have essentially concentrated on case studies with only limited reference to NEG. This report and the research behind it attempts to work on bridging this gap in the Brazilian literature. In doing this it will build on and extend existing frameworks. LED is a potentially important factor affecting spatial equity and empowerment of the poor. The NEG studies can give some general advices on policy oriented meters but it can give very few suggestions on the implementation process. On the other hand, the case studies approach that seems to dominate the literature on LED can expose important implementations process but it cannot give clear advices on general purposes such as which policies to pursue or to establish causality relations between instruments and performance.